Colleagues, we are actually running a little behind, so we'll start the meeting now. This will be meeting number 98. Today, we'll be dealing, once again, with the communication policy pertaining to government advertising.

We have some guests with us who will be appearing via teleconference. Colleagues, what we'll do, from a procedural standpoint, is start with them, and then go to our guests who are appearing in person.

I ask all intervenors, whether on video conference or here in person, to try to keep their remarks as brief as possible. We will have four separate presentations. If we can keep them to 10 minutes or less, that should allow us enough time for at least one complete round of questioning by our colleagues here in person.

With that, ladies and gentlemen, we'll begin.

I will start with the representatives from the Alberta Weekly Newspapers Association.

I am Duff Jamison. I am the president and CEO of Great West Newspapers, which publishes 18 community newspapers here in this province.

Today, I'm here in my role as the government affairs chairman for the Alberta weeklies. That association represents 108 titles across the province, most of which are still independently owned and operated.

Community newspapers face an uncertain future, as advertisers, including the federal government, have begun to rely more heavily on digital platforms to communicate key messages. Print advertising remains the mainstay of our members' business models. Community newspapers rely primarily on local businesses, community organizations, schools, local governments, and national and classified advertising. National advertising includes automakers, financial institutions, the federal government, and other large players. It has experienced the greatest decline over the past four years.

Community newspapers generally serve market populations of fewer than 100,000 people and the majority would be well under that. We are the original hyper-local guys providing the primary source of local news for our residents and very cost-effective local advertising.

Our once or twice a week frequency distinguishes us from the dailies. Our news is rarely of the breaking news variety. Our readers seem comfortable with the fact that our newspapers are not available in print every morning. They need and want to know what's happening in their communities, but they don't demand it the minute that it happens.

When it is important to get the story out quickly, most community papers can quite capably do that on our digital platforms. We may lack the digital horsepower of The Globe and Mail, but we're not in the Dark Ages either. Free content, a reader's nirvana in the digital age, is actually old news in the community newspaper industry. Although many paid subscription weeklies remain in small markets, in the larger markets, we've long delivered community news free to our readers, which has been paid for by our advertisers who want to reach the total market.

The real secret sauce of a successful community newspaper is operating it like it is community-owned, so not at arm's-length, as is often the case at a daily, but in the trenches, by actively participating in our communities. I often tell our local politicians and community leaders that, like them, we are in the business of building stronger, healthier places for everyone. We are fully engaged with our communities, leaving no doubt with anyone that we have their best interests in mind. By doing so, we earn the newspaper credibility and respect with its readers, which earns us support when we criticize the leaders and institutions that we feel have let the community down. If you ever have any doubt about the relationship between residents and their community newspapers, visit us at civic election time, which it is right here in Alberta today, as the election is October 16. Battles are often won and lost on our pages. Emotions run high and letters to the editor are overflowing our inboxes.

Unfortunately, in spite of the continued loyalty of our readers, the current picture for community newspapers is not a pretty one. As I mentioned at the outset, print advertising revenues, by far the largest source of revenue for Canada's community newspapers, are in decline. Digital advertising revenues, which are tied to our news reporting, remain insignificant simply because community newspaper websites and social media feeds do not generate the traffic required to cover their reporting costs. It's not even close today, nor will it be in the foreseeable future. Although some publishers have launched digital agencies offering programmatic advertising—SEO, LSO, etc.—it's still to be proven whether a small market can generate significant digital profits to support local journalism.

Subscription and newsstand revenues are important sources of revenue for the declining number of paid circulation community newspapers. However, with circulations often fewer than 5,000 and annual subscription rates of about $50, these also fall well short of covering reporting costs. Paywalls help protect this revenue, but also reduce online traffic and digital advertising revenue with it. It's very difficult to see a point at which print advertising revenues will not be the major revenue contributor for even paid community papers.

There is no reader revenue in a free paper and most Canadian community newspapers are not paid newspapers, which leaves them to rely entirely on advertisers to pay the costs of reporting local news. These papers tend to be in larger communities near metro areas served by dailies and other media.

Not often mentioned in the discussion is that many local advertisers and organizations remain dependent on local media to reach local residents and consumers. In most communities with fewer than 100,000 people, print media delivers the largest audience by far. Although most businesses have websites, Facebook groups, and Twitter feeds, it has proven very difficult to build any real mass of followers. Without the market penetration of local media, therefore, most would find it extremely difficult, if not impossible, to reach the vast majority of residents.

A recent study bears out our contention that community newspapers deliver the largest audience by far, with 83% of Canadians being local community newspaper readers, according to a 2016 study by Totem Research. This study showed that time spent with the printed newspaper is virtually unchanged compared with two years ago.

Printed community newspapers readers are reading their local information as well as advertising, with 63% stating that they want to see advertising in their community newspaper. The 2,400 Canadians surveyed reported that community newspapers were the top medium for local information, followed by local television and local radio.

Does government have a role in helping to preserve this important source for local information? We think it does. The federal government could replenish its print advertising budget. While local governments remain solid advertisers, federal and provincial advertising has nearly dried up. A decade ago the federal government spent 47% of its ad budget in newspapers: 28% in dailies and 19% in community, ethnic, and aboriginal weeklies. In the 2014-15 fiscal year it spent 7% in total on newspapers: 1% in dailies and 6% in weeklies. In that same period, the spending with Internet companies rose from 6% to 28%. Most of that money went to U.S. firms like Google.

Section 5 of the government's policy on communications and federal identity sets out objectives and expected results. The objectives say government communications are to be responsive to and meet “the diverse information needs of the public”. Multiple surveys of the public show that their local community newspaper is by far the number one source of local information, a fact easily confirmed with a call to any mayor or municipal CAO.

Section 5 also states that communications are to be “cost-effective and achieve savings through standardization”. Our experience tells us that the emphasis is too often put on “cost” and too rarely on “effective”, when you would hope it would be the other way around. After all, the objective of the exercise is to be responsive and meet the diverse needs of Canadians.

Many Canadians, particularly those living outside major cities, continue to rely on their local community newspaper for important information. Members of Parliament do too, and they are in regular communication with the reporters, editors, and publishers of their local papers. They know where their constituents find out what's happening locally. Simply having the federal government make a serious commitment to include community newspapers in its advertising budgets would significantly improve the effectiveness of its communication with a diverse group of Canadians and go a long way toward supporting local journalism.

As the publisher of the Rainy River Recordsaid to a CBC reporter on the closure of his newspaper in September 2016, the government's decision to pull its advertising budget from newspapers and spend it on social media has made a big difference.

Thomas SarasPresident and Chief Executive Officer, National Ethnic Press and Media Council of Canada

Mr. Chairman, members of the committee, bonjour.

On behalf of the National Ethnic Press and Media Council of Canada and its 850 members, I am appearing before you today to explain a few things that we have lost, at least for the last three years. It is a policy that started under the government of the late prime minister Trudeau, continued with Mr. Mulroney, and was followed by Mr. Chrétien and subsequent governments up until the most recent government, for the last three years. Then suddenly, the government advertisements to the ethnic papers were shut down totally, without an explanation or any reason for this policy change.

I want to tell you that Canada is a multicultural country, as declared by the House of Commons and accepted by the Government of Canada. As such, the various communities maintain the right to information in their own language, whatever it may be, their mother tongue. Therefore, the continuation of those publications is vital. They are helping Canada and also the government to spread the messages and the policies to the various people, new Canadians or old Canadians, who still continue to read the news in their mother tongue.

In the last three years, because of the change in policy, a number of publications have already shut down. It is a sort of crisis that affects not only the members of the ethnic publications but also the mainstream media, and this is a trend. The whole industry is in trouble, and we are trying to survive. If this trend continues, of course many publications are going to die. Some will probably try to come out for a very short period of time. The fact is that, either way, the one who is losing is Canada.

Please allow me to refer to some policies of other governments. The Italian government, for example, has a special budget every year for Italian publications outside of Italy. Every publication in the Italian language published in Canada receives x number of dollars each year from the Italian government to support itself. The same thing happens as far as I know with other governments and communities. By doing that, we allow the intervention of foreign governments into the business of Canada. Some are friendly, and some are not so friendly. The message that goes out is vital to the future of all of us as a country, as a community, and as a unified entity of the international community.

In the past, we had other problems. Through the system of distributing government advertising through Public Works Canada, they created a number of third parties that used to get 30% of every advertising unit for no reason, and that money was cut from the publishers in order to support the third parties that were looking after bringing in the advertising.

As a result, the very first time we lost I believe it was around $2 million. Five years ago, the last time, we lost another $1.5 million in Toronto, because the official agent that was getting those advertisements went bankrupt. Although the Government of Canada paid the money, that money never reached the members who carried the advertisement.

Today I'm not just asking you to restore the fact and start giving distributors government advertisement, or a portion that goes to our members, but it is also very important that your committee decides on the elimination of the third parties. The government has the ability to direct deal with every publication, which is going to be straight and clean business. No one interferes and nobody can get any profit out of this business, except the person who offers its services. This is the publication and the publisher, or the editor of the publication.

That is what I want to tell you. I wanted to bring those to your attention. Some of you know the industry very well and the problems we are facing.

Thank you, Mr. Chair and distinguished members. It's a pleasure to appear before you again.

I'm Matthew Holmes, president and chief executive officer of Magazines Canada, the national association representing the majority of Canadian-owned and Canadian-content consumer, cultural, and business magazines. French, English, indigenous, and ethnic member titles cover a wide range of interests, trades, and communities across the country.

Today I plan to tell you that Canada's approach to advertising has never had to question its own impact on the greater media ecosystem it relies upon. But that is changing. From the earliest days of the national railways, which became both the conduits for and the genesis of our national broadcaster, our ability to communicate with our fellow citizens has been established through supportive legislation that has never questioned the fact our media were already, by definition, domestic—covering Canada, empowering and employing citizens, creating tax base, etc.

The government has not had to make explicit that its advertising is a part of the media's business model. In fact, I have seen officials from Public Works and Government Services testify recently before committee that advertising is not meant to support the domestic industry, and in one sense they are correct. But this view also glosses over the very clear fact that it always did support it, until now. It is my opinion that this committee's work is significant, for the simple reason that the recommendations you make, or do not, will help decide whether that symbiotic relationship continues between government and Canadian-based, Canadian-content media.

Magazines are an essential part of Canadians' lives and an important economic sector that knits our communities together. We have nearly 2,700 business-to-business consumer and cultural magazine brands, employing roughly 15,000 Canadians, from digital video production to investigative journalism.

Canadian magazines are published in 34 different languages, from every single province and territory in the country. By editorial focus, consumer titles represent 51% of the total, followed by business and professional magazines, including farm titles at 39%. Ethnic and arts and cultural titles each represent 5% of the total.

Magazine brands reach over three-quarters of Canadians of all ages, across all platforms, but the latest Vividata research also shows that 93% of Canadians still read magazines in print only, or a mix of print and digital. Even though Canada is one of the world's heaviest users of the Internet, only 7% of Canadians read magazine content exclusively via digital channels, including social media, web, tablet editions, and so on.

While Canada's magazine sector recognizes print's legacy, we are also drivers of digital innovation. I'm not here to make this an argument about the legacy print media versus digital disruptors. In fact, magazine media reach Canadians across print, digital, social, email, video, webinars, live events, even virtual reality.

Unfortunately, over the past few years the underlying economics of consumer magazine publishing in Canada have collapsed. Canadian print advertising spending has migrated to digital platforms, and digital advertising has, in turn, migrated offshore, largely to U.S.-based digital content distributors. Advertising revenues have decreased by half since 2007, from $732 million to $390 million. This decline has accelerated in the last four years by one-third.

Shifting over to our business-to-business and farm media, they represent 95% of the decision-makers in small and medium businesses in Canada, and often can be sub-targeted by industry and geography. This is an important demographic affected by government policy and incentives, one that you may want to ensure receives clear messaging from government on topics as broad as changes to the tax code, or as specific as interim financial assistance for operators affected by the softwood lumber dispute with the U.S. Facebook here probably misses the mark.

I've provided you with a very quick introduction to the sector I represent. Now let me tell you how the government, historically, has supported it through policy and legislation.

Canada's direct support for the magazine sector is older than the country. It predates Confederation. The original postal subsidy was designed to ensure that Canadians across the country had equal access to the information and stories that tie us together. Unspoken is that much of this is directly underwritten by advertising and, historically, that did include government advertising as well.

The ongoing principal support for magazines, as well as for paid community newspapers, is the Canada periodical fund that Minister Joly last week reaffirmed as the primary vehicle for the government's support for these important sectors.

In 1999, at the end of the so-called “magazine wars” fought under NAFTA and via the WTO, our government established the Foreign Publishers Advertising Services Act. The act was established in response to a clear trend of U.S.-based media giants that were aggregating content, directing it at Canadian audiences, and then using that audience to sell ads to Canadian advertisers. Does this sound familiar? At the time, this was universally considered an end run on our domestic media, so the government of the day limited the amount of advertising space a foreign publisher could sell to a Canadian advertiser in a Canadian edition to a maximum of 18% of the total available advertising space.

In my opinion, this act was based on the principle that the government was not supportive of massive foreign media platforms that target and monetize Canadian audiences and that are unaccountable to our regulatory or civic fabric.

On top of this, in 2000 these policies were strengthened via sections 19 and 19.1 of the Income Tax Act, which allows Canadian advertisers to deduct advertising costs from their taxes when they advertise in Canadian-owned and Canadian-controlled magazines, newspapers, or via broadcast channels. However, this was never applied to digital properties, which was an oversight at the time, since these were generally non-existent.

This change to the tax code was a clear signal by the government of the day that it had an obligation to directly support and foster the domestic media ecosystem, which was achieved via a support framework for advertising, full stop.

The net effect of these integrated policies was immediate and profound and led to the relative stability of Canada's magazine industry for over 15 years, but they were put in place before the Internet and e-commerce were realities. Where the old Canada sought to minimize the damage to local business from foreign advertising platforms that target Canadians, we see the new government instead report growth in digital advertising, most of which is for foreign platforms, from 7% to 34% in a matter of years.

Where the old Canada sought to incentivize support for the domestic media ecosystem through the tax code, we see the government ignore a loophole that sees any online advertising anywhere qualify for the full tax deduction intended to incentivize support for Canadian-owned and Canadian-controlled print and broadcast media.

In both cases, the financial support is flowing to foreign bodies that employ few, if any, domiciled, tax-paying Canadians; that support few local businesses; that meet no Canadian content thresholds; and that, in fact, are not even obliged to pay GST on the goods and services they sell here.

Your peers on the Standing Committee on Canadian Heritage released a major report in the summer that called for the government to broaden section 19 of the tax act to include digital advertising; to subject foreign news aggregators and advertisers to the same taxes our domestic industry faces; and finally, to increase the dissemination of government information, particularly in official languages and ethnic communities that are served by our small media. I think this committee should echo these recommendations.

In closing, Mr. Chair, I would like to return to the topic I opened with: whether the government has an obligation to consider the bigger ecosystem impact its advertising expenditure has. I would argue that it does, just like it might consider the economic magnifier of investments in major manufacturing or infrastructure projects.

Good morning. My name is John Hinds, and I'm the CEO of News Media Canada. We're the voice of Canada's newspapers, and we currently represent over 800 daily, weekly, and community papers from coast to coast to coast in English and French.

On behalf of all our newspapers, I would like to thank the committee for this invitation to consider this important issue.

I am here today to speak on the importance of government advertising policy and its impact on communicating effectively with Canadians.

The first issue I would like to deal with is a perception that Canada's newspapers hear far too often: that nobody reads newspapers anymore, or that people don't advertise in newspapers because nobody reads them. Nothing could be further from the truth. In fact, more than ever, Canadians read newspapers. Almost nine in 10 Canadians read a newspaper every week, and that's up from five years ago. Six in 10 Canadians are reading print newspapers every week. Newspaper readership is now multi-platform, with three in 10 Canadians reading both print and digital formats. Even 85% of millennials are reading newspapers, with phone, of course, being their preferred platform.

As you all know, Canada's newspapers are facing a business challenge, as they grapple with changing revenue models, but we don't have a readership problem. There is still a strong case to be made for print readership and for print advertising, particularly with certain key demographic groups. Eight in 10 boomers are reading newspapers, and 64% of those are reading in print. Of business decision-makers, 92% are reading newspapers, and 71% of those are reading print.

Indeed, one of the challenges that you have likely heard about is the ongoing lack of access to broadband by many Canadians. This was referred to by Minister Joly in her cultural announcement last week. In Atlantic Canada, for example, only 70% of non-urban residents have access to broadband, and much less so in the north. Similarly, in Quebec, nearly one quarter of non-urban residents do not have broadband access.

This inequity extends to low-income Canadians. While 95% of Canadians in the highest income quartile are connected, only 62% of those in the lowest income quartile have access. We have also heard a lot about data caps and costs of access to quality broadband.

At News Media Canada, we believe that the Government of Canada has a duty to inform all Canadians about its programs, services, policies, and decisions. Advertising is one of the ways in which the government ensures that individuals, families, and businesses have the information they need to exercise their rights and responsibilities, and to make informed decisions about their health, safety, and security.

While the race to digital is well under way, an important factor that currently escapes many who are responsible for federal government advertising is that Canadians trust ads that appear in newspapers and on news websites. According to a 2016 study by Advertising Standards Canada, 73% of Canadians are very comfortable or somewhat comfortable with ads in newspapers—higher than any other news medium in the country.

Canadians still trust traditional media the most. According to the 2017 Reuters Institute “Digital News Report”, eight out of 10 Canadians still consider traditional media and their brands among the most trustworthy sources. In short, Canadians trust advertising content in newspapers, both print and digital, more than any other media. Ads on social media, such as Facebook, and in search engines, such as Google, are among the least trusted. The difference is most pronounced in the digital sphere, where only 18% of Canadians trust an ad on a mobile device, compared to almost 40% for a newspaper website.

Our research data shows that Canadians want to see advertising of government programs and services in their newspapers: 72% of Canadians want to see government ads in newspapers, while only 40% want to see them in an Internet search, and only 34% on social media.

We believe that the Government of Canada's advertising policy should reflect where Canadians look to find information about their community, and that newspapers, both print and digital, play a vital role in informing Canadians. We believe that the government's advertising spend should be smart and provide information to Canadians in trusted formats where they want to see ads.

We recognize that the government is spending less on advertising. It spent 39% less last year than in previous years. In 2015-16, the federal government spent $42.2 million on advertising, a reduction of $26.5 million from the previous year.

Despite this fact, the decline in federal government advertising expenditure has been well out of line with private sector advertisers. Of the $42.2 million that the federal government spent in advertising last year, the amount spent in daily newspapers was $513,120 or 1.7% of the total government ad spend. The amount spent in community newspapers, $488,563, was 1.6% of the total government ad spend. This decline is way out of line with non-government advertising revenues.

Despite our recent challenges, newspapers remain the third-largest advertising vehicle in Canada, behind digital and TV, with revenues of over $2 billion, or about 17% of total ad sales.

There's an added benefit of a government advertising policy that encourages placing ads in Canada's newspapers. Ads placed in newspapers are effective, and they have the added advantage of strengthening Canadian businesses and Canada's communities.

The Government of Canada has traditionally been the largest advertiser in the country, and for decades the government understood that by working with local media businesses they were enabling local media, not only to inform local residents about government programs and services, but also to report on town councils and local hockey games, while engaging businesses and volunteers in raising funds for local hospitals and the like. Local news doesn't happen when those advertising dollars are sent to Silicon Valley. In addition, these local newspapers employ Canadians and pay taxes, and newspapers still employ about 65% of the journalists in Canada.

This is not an issue that's taking place in a conceptual bubble. My colleague Duff Jamison recently reported that the newspaper in Rainy River had closed. The decline in advertising revenue was the reason, and according to the publisher the largest advertising decline was in government advertising.

I'm coming to you today to underscore the unfairness on today's playing field and to offer you a simple message: that government advertising dollars spent in Canadian newspapers, both print and online, provide an effective way to reach all Canadians, give value for money spent, and support Canadian businesses and communities.

As elected officials and trustees of the public purse, this is a message I sincerely hope you take to heart.

Colleagues and witnesses, one of the challenges any committee has is that there never seems to be enough time for all of our questions. However, today we are under even more of a time constraint because we have another witness coming before us very soon. We'll do our best to get all the questions on the record and to consider all the information you want to put before us.

Thank you, Mr. Chair, and my thanks to all of the witnesses for being here.

I'm a rural Ontario MP and I have to use community newspapers to reach out to my target audience, because not everybody has a subscription to digital platforms, and even if they do they can't access it sometimes because of the lack of rural broadband.

One of the things you mentioned, Mr. Holmes, was that in the nineties the government of the day put in a policy to limit foreign advertising. If we did that as a government, would we have the necessary tools on digital platforms? If we were to limit Facebook advertising, say, would we have something similar in Canada to reach our target audience?

There is already a robust digital ecosystem in the Canadian media. I can speak for the magazine industry I represent, but I know this also exists in many of the community papers and certainly in the dailies and other digital-only platforms. They provide Canadian content and Canadian views and perspectives. The business model itself isn't sufficient for many of these businesses. The magazines have moved into digital. They used to sell page advertising; now they're selling digital advertising. But it's not just about making that transition from one to the other. You can't run the same business off that same revenue stream. It's migrated into a very different ecosystem. The large aggregators like Google can sell a click ad at a fraction of a cent, or at a return so low that a Canadian business wouldn't be able to match it and still be viable.

What I was trying to represent is that our magazine industry is active across a full continuum. They can touch Canadians whether it's in print, on their phones, or on their laptops, and they're able to get that messaging out in a multi-pronged approach.

Mr. Saras, you talked about third party advertising, and I want to get all of your opinion on this. What happened with the communications procurement directorate? I understand that a few years ago there was a move towards larger publishers, towards a prime contractor. They would source out to larger newspapers or radio stations. This is affecting community radio stations and community newspapers. The Government of Canada no longer has the same presence in the smaller markets. I'm just trying to understand. You mentioned that you had some contracts with third party organizations, and now you don't. Can you explain that to me?

The system has been developed over the years, but some smart guys created a company representing the ethnic papers. They were taking part of the distribution of the government advertisements to the various members. As a result, they were cutting, by 30%, the total amount that was supposed to be paid to the newspaper.

Eventually, in two cases at least that I can remember, they gathered the money for six or seven months and then they declared bankruptcy. The result was that, for six months, my members lost all their money that the government owed to them.

We had a problem with Public Works Canada, to this extent. In direct conflict, I accused them of working or co-operating with them for reasons that I'm not in a position to know. As a result, the members were losing money, which is very vital for their survival. Since that time, I've never heard anything from the Department of Public Works.

Unlike the ethnic newspapers, we have virtually none. Although, because we have a by-election, we have three or four papers in Alberta that will get some advertising for that by-election. That's about all we'll likely see in 2017.

We lost a large auto manufacturer that had been advertising with community newspapers for decades, back in December 2016. The agency told us that they recognized we are by far the most effective and engaged media in the local communities, that people read their community newspaper like no other media, but he was looking for dollar savings, cost savings.

He used the same word that we see in the policy, “efficient”. What he means by efficient is that it's cheap. An agency can make their bottom line much easier by placing inexpensive digital advertising with the Googles and Facebooks of this world compared to buying display advertising in newspapers. It's about as simple as that.

He admitted that it wasn't going to be as effective, it wasn't going to reach as many people, but it was so cheap that he couldn't help but go there.

I think we're seeing the same thing with the federal government. You're being told that this is going to save you money and your budgets, that it's going to be just as effective. When it comes to particularly exurban markets, that's not true.

Mr. Jamison, Mr. Merrell, it's great to see someone from Edmonton. It's worthwhile to the committee to see someone from Edmonton today.

We're short on time, so I'll ask a very quick question to you.

The Government of Canada's objectives are to provide ads, communications that are responsive to the diverse information needs of the public. I'm looking at survey results from AdCanada Media from 2014. It shows communities of 5,000 and fewer that are served by a lot of your association, and that 71% prefer the community newspaper for information. In communities of 5,000 to 10,000, 78% prefer community newspapers for their information. Only about 15% in both of those communities preferred it over the Internet.

Considering this information, are we failing what the government directive is, which is to provide diverse information? Are we failing rural Alberta and rural Canada?